ASM

Business Context and Reporting Period

Company: Avino Silver & Gold Mines Ltd.
Filing Type: Form 20-F Transition Report
Reporting Period: Eleven months ended December 31, 2007 (Fiscal Year 2007-II).
Business Overview: Avino is a Canadian-based resource firm in the exploration stage, focused on silver and gold properties in Mexico (primarily the Avino Mine via Cia Minera) and Canada (British Columbia and Yukon). The Company changed its fiscal year-end from January 31 to December 31 to align with its Mexican subsidiaries.

Key Financial Metrics (Canadian GAAP)

Note: Under US GAAP, the Net Loss for the period was $(3,218,213) due to the expensing of exploration costs rather than capitalization.

Material Changes vs. Prior Period

• Net Loss Reduction: Net loss decreased significantly from $(3.65M) to $(0.89M). This improvement was primarily driven by the absence of a $2.86M stock-based compensation charge recorded in the prior year.
• Unusual Expenses: The current period included a litigation settlement expense of $759,302 (related to a royalty dispute at the Avino Mine) and a misappropriation loss of $86,155 (fraudulent disbursement from a Mexican bank account).
• Tax Benefit: A future income tax recovery of $501,083 was recognized, reducing the net loss. This relates to Mexican tax loss carry-forwards offsetting future income tax liabilities.
• Cash Position: Cash and cash equivalents declined by approximately $4.7M, reflecting operating cash outflows and exploration expenditures without new equity financing during the period.
• Ownership: The Company increased its ownership in Cia Minera to 89.35% following the acquisition of an additional 1.1% interest for no consideration.

Outlook, Risks, and Management Commentary

• Exploration Plans: Management plans to continue exploration at the Avino property in Mexico, specifically targeting the San Gonzalo and ET zones. A 10,000-tonne bulk sampling program is planned for 2008, with estimated costs of $2.6M (capital and operating).
• Liquidity: The Company stated it has sufficient cash on hand to finance planned exploration and administrative operations through December 31, 2008. However, it remains in the exploration stage with no operating revenues.
• Going Concern: The filing explicitly states that the Company's ability to continue as a going concern is dependent on raising new financing and discovering economically recoverable reserves. There is substantial doubt regarding this ability without further capital.
• Internal Controls: Management identified material weaknesses in internal controls over financial reporting, citing a lack of segregation of duties and limited staff resources to address complex accounting issues.
• Risk Factors: Key risks include the speculative nature of mining, volatility in metal prices, political instability in Mexico, and the potential inability to raise additional capital.

Investor Verification Checklist

• Cash Runway: Verify if the $6.3M cash balance is sufficient to cover the estimated $3.8M+ in 2008 exploration and bulk sampling costs, plus ongoing administrative expenses.
• US GAAP Reconciliation: Review the significant difference between Canadian GAAP (capitalized exploration) and US GAAP (expensed exploration) to understand the true economic cost of operations.
• Legal Settlements: Confirm the status of the $1.5M royalty settlement and the recovery efforts regarding the $86k misappropriation loss.
• Resource Estimates: Note that mineral resources are reported under Canadian standards (NI 43-101) and are not recognized as reserves by the SEC; verify the feasibility of converting resources to reserves.
• Related Party Transactions: Review the $153k+ in administrative expenses paid to Oniva International Services Corp and other related entities for potential conflicts of interest.